Skip to main content
SpringerLink
Log in

Entrepreneurship and the taste for discrimination

  • Regular Article
  • Published:
Journal of Evolutionary Economics Aims and scope Submit manuscript

Abstract

This paper analyzes the connection between discrimination and entrepreneurship. We contend that the entrepreneur is the central mechanism through which inefficiencies associated with discrimination are competed away. In addition to illuminating the mechanism through which existing discrimination tends to be eliminated, we also consider the more difficult case of consumer discrimination. The standard assumption is that consumer discrimination will not be competed away through market forces. In contrast, we find that entrepreneurs can correct the inefficiencies associated with this form of discrimination by influencing the costs and benefits associated with consumer discrimination. We empirically analyze the integration of black players in Major League Baseball to illustrate our theoretical arguments regarding entrepreneurship and consumer discrimination.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. For a survey of the discrimination literature, see Cain (1986).

  2. It should be noted that in addition to Becker’s taste-based theory of discrimination, there is also a literature on the statistical theory of discrimination (see Phelps 1972; Arrow 1973). The statistical theory of discrimination focuses on the information asymmetries facing firms. Because firms have limited information, they tend to intuit the expected productivity of job applicants based on observable characteristics. Our focus in this paper is on the taste-based theory of discrimination.

  3. Becker is careful to show that the erosion of discrimination depends not only on the taste for discrimination but also on firms production functions (1957: 43–45). There is also a literature exploring the existence and persistence of discrimination under various industry structures. See for instance Doeringer and Piore (1971) and Black (1995).

  4. We would like to thank an anonymous referee for suggesting this addition.

  5. We use ‘quality’ as a general term to define any non-price variable that may appear in a consumer’s utility function.

  6. See Srinagesh and Bradburd (1989) who demonstrate the appropriate reference for the location of quality difference depends on the consumer groups. See also Mussa and Rosen (1978) and Ecchia and Lambertini (1997) for the role of utility theory and quality differences among products.

  7. Such a result may help to explain why cities with multiple baseball teams only had one team integrate during the early years. Under a duopoly scenario, such an outcome ensures full market coverage (Mussa and Rosen 1978; Ecchia and Lambertini 1997), and a slower integration process.

  8. Olson and Schwab (2002) analyze the impact of the farm team system on the performance of its early adopters.

  9. Unlike our theoretical model where, discrimination was seen as a continuous interval between a and b, empirically we recognize that a team either integrates or it does not integrate, hence we use a non-continuous measure following Besanko et al. (1990).

  10. We have not included price in Eq. 2 since average ticket prices were stable over the period of integration. See www.rodneyfort.com for details. Further, ticket prices were set for any given year so that prices could not be changed during the season to reflect changes in relative quality as it was revealed.

  11. Productivity variables such as slugging average and earned run average may also help to predict whether a team is in pennant contention. Similar to Goff et al. (2002), we find that the number of black players positively affects slugging average; we further find that adding black players improves (lowers) earned run average even when only non-pitchers are added. Thus, since such productivity measures appear to be captured in the black variable, we have not included them here so as to avoid multicollinearity.

  12. There are a few candidates for regression type for Eq. 3, including the Poisson and the negative binomial. While the Poisson regression is commonly-used, it has the limiting restriction of the expected value of the mean equaling that of the variance. Cameron and Trivedi (1986) argue that the Poisson regression model may yield results that overestimate statistical significance when data are overdispersed and this limiting assumption does not hold. In cases where this limiting restriction is too limiting, the negative binomial regression model relaxes this restriction. Moreover, as Long (1996) points out, the negative binomial regression model addresses the issue of underprediction of zeros in the Poisson regression model.

  13. Since we model CP solely as a function of BLACK—and the coefficient is marginally significant—we also estimated Eq. 4 with a random effects specification as a robustness check. The random effects coefficient is 0.3643, with a z-statistic of 2.07. Further, we ran a Hausman (1978) test (χ 2 = 0.10 with 1 degree of freedom) that provides evidence that the random effects are consistent. Nevertheless, while the random effects provides statistical robustness, since we use the entire population, and Eq. 4 is purely instrumental, we have chosen to use the fixed effects results in our estimation of Eq. 2 (Greene 1997). We would like to thank an anonymous referee for making this suggestion.

References

  • Arrow KJ (1973) The theory of discrimination. In: Ashenfelter O, Rees A (eds) Discrimination in labor markets. Princeton University Press, Princeton, pp 3–33

    Google Scholar 

  • Bardolph R (1959) The negro vanguard. Rinehart, New York

    Google Scholar 

  • Becker G (1957) The economics of discrimination. The University of Chicago Press, Chicago

    Google Scholar 

  • Besanko D, Perry MK, Spady RH (1990) The logit model of monopolistic competition: brand diversity. J Ind Econ 38(4):397–415

    Article  Google Scholar 

  • Black DA (1995) Discrimination in an equilibrium search model. J Labor Econ 13(2):309–334

    Article  Google Scholar 

  • Bodvarsson O, Brastow R (1999) A test of employer discrimination in the NBA. Contemp Econ Policy 17:243–255

    Article  Google Scholar 

  • Bradbury JC (2007) The baseball economist: the real game exposed. Dutton, New York

    Google Scholar 

  • Cain GG (1986) The economic analysis of labor market discrimination: a survey. In: Ashenfelter O, Layard R (eds) Handbook of labor economics. Elsevier Science Publishers B.V., North-Holland, pp 693–785

    Chapter  Google Scholar 

  • Cameron AC, Trivedi PK (1986) Econometric models based on count data: comparisons and applications of some estimators and tests. J Appl Econ 1:29–53

    Article  Google Scholar 

  • Coyne CJ, Isaacs JP, Schwartz JT, Carilli AM (2007) Put me in coach, i’m ready to play. Rev Aust Econ 20(4):237–246

    Article  Google Scholar 

  • Cymrot DJ (1985) Does competition lessen discrimination? Some evidence. J Hum Resour 20(4):605–612

    Article  Google Scholar 

  • Doeringer PB, Piore MJ (1971) Internal labor market and manpower analysis. Heath, Lexington

    Google Scholar 

  • Ecchia G, Lambertini L (1997) Minimum quality standards and collusion. J Ind Econ 45(1):101–113

    Google Scholar 

  • Fort R, Maxcy J (2001) The demise of African American baseball leagues: a rival league explanation. J Sports Econ 2(1):35–49

    Article  Google Scholar 

  • Frick B (2007) Salary determination and the pay–performance relationship in professional soccer: evidence from Germany. In: Rodriguez P, Késenne S, Garcia J (eds) Sports economics after fifty years: essays in honor of Simon Rottenberg. Universidad de Oviedo, Oviedo, pp 125–146

    Google Scholar 

  • Goff BL, McCormick RE, Tollison RD (2002) Racial innovation as an innovation: empirical evidence from sports leagues. Am Econ Rev 92(1):16–26

    Article  Google Scholar 

  • Greene W (1997) Econometric analysis, 3rd edn. Prentice Hall, New Jersey

    Google Scholar 

  • Gwartney J, Haworth C (1974) Employer costs and discrimination: the case of baseball. J Polit Econ 82(4):873–881

    Article  Google Scholar 

  • Halcoussis D (2005) Understanding econometrics. Thompson-SouthWestern, United States.

    Google Scholar 

  • Hanssen A (1998) The cost of discrimination: a study of major league baseball. South Econ J 64(3):603–627

    Article  Google Scholar 

  • Hausman JA (1978) Specification tests in econometrics. Econometrica 46(6):1251–1271

    Article  Google Scholar 

  • Holzer HJ, Ihlanfeldt KR (1998) Consumer discrimination and employment outcomes for minority workers. Q J Econ 113(3):835–867

    Article  Google Scholar 

  • Ihlanfeldt KR, Young M (1994) Intrametropolitan variation in wage rates: the case of Atlanta fast-food restaurant workers. Rev Econ Stat LXXW:425–433

    Article  Google Scholar 

  • Kahn LM, Sherer P (1988) Racial differences in professional basketball players’ compensation. J Labor Econ VI:40–61

    Article  Google Scholar 

  • Kain J (1968) Housing segregation, negro employment, and metropolitan decentralization. Q J Econ LXXXII:175–197

    Article  Google Scholar 

  • Kalter F (1999) Ethische kundenpräferenzen im professionellen sport? Der fall der fußballbundesliga. Z Soziol 28:219–234

    Google Scholar 

  • Kirzner I (1973) Competition and entrepreneurship. The University of Chicago Press, Chicago

    Google Scholar 

  • Leeson PT, Coyne CJ, Boettke PJ (2006) Does the market self correct? Asymmetrical adjustment and the structure of economic error. Rev Polit Econ 18(1):79–90

    Article  Google Scholar 

  • Long JS (1996) Regression models for categorical and limited dependent variables. Sage, Thousand Oaks

    Google Scholar 

  • Mussa M, Rosen S (1978) Monopoly and product quality. J Econ Theory 18:301–317

    Article  Google Scholar 

  • Nardinelli C, Simon C (1990) Consumer racial discrimination in the market for memorabilia: the case of baseball. Q J Econ CV:575–596

    Article  Google Scholar 

  • Neumark D (1996) Sex discrimination in restaurant hiring: an audit study. Q J Econ CXI:915–942

    Article  Google Scholar 

  • Olson CA, Schwab A (2002) The performance effects of human resource practices: the case of interclub networks in professional baseball, 1919–1940. Ind Relat 39:553–577

    Article  Google Scholar 

  • Pedace R (2008) Earnings. Performance, and nationality discrimination in a highly competitive labor market. J Sports Econ 9:115–140

    Article  Google Scholar 

  • Phelps ES (1972) The statistical theory of racism and sexism. Am Econ Rev 62:659–661

    Google Scholar 

  • Reichler J (1974) The baseball encyclopedia. Macmillan, New York

    Google Scholar 

  • Schumpeter JA (1934) The theory of economic development. Harvard University Press, Cambridge

    Google Scholar 

  • Schumpeter JA (1942) Capitalism, socialism, and democracy. Harper and Brothers, New York

    Google Scholar 

  • Scully GW (1974) Pay and performance in major league baseball. Am Econ Rev 64(6):915–930

    Google Scholar 

  • Srinagesh P, Bradburd R (1989) Quality distortion by a discriminating monopolist. Am Econ Rev 79:96–105

    Google Scholar 

  • Stigler GJ, Becker GS (1977) De gustibus non est disputandum. Am Econ Rev 67(2):76–90

    Google Scholar 

  • Szymanski S (2000) A market test for discrimination in the english professional soccer leagues. J Polit Econ 108:590–603

    Article  Google Scholar 

  • Tremblay CH, Tremblay VJ (1996) Firm success, national status, and product line diversification: an empirical examination. Rev Ind Organ 11(6):771–789

    Article  Google Scholar 

  • Wilson D, Ying Y-H (2003) Nationality preferences for labour in the international football industry. Appl Econ 35:1551–1559

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, West Virginia University, Morgantown, WV, 26506-6025, USA

    Christopher J. Coyne

  2. Department of Economics, Hampden-Sydney College, Hampden-Sydney, VA, 23943, USA

    Justin P. Isaacs & Jeremy T. Schwartz

Authors
  1. Christopher J. Coyne
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Justin P. Isaacs
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Jeremy T. Schwartz
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christopher J. Coyne.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Coyne, C.J., Isaacs, J.P. & Schwartz, J.T. Entrepreneurship and the taste for discrimination. J Evol Econ 20, 609–627 (2010). https://doi.org/10.1007/s00191-009-0164-6

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00191-009-0164-6

Keywords

JEL Classifications

Search

Navigation